Currently before the court are the objections of the plaintiffs
(the "Plaintiffs"), excluding Michael Malone and Thomas Malone
(the "Malones"), to a Report and Recommendation (the "Report and
Recommendation") of United States Magistrate Judge Ronald J.
Hedges, filed 1 February 1991. Plaintiffs ask that the court
reject the Report and Recommendation and retain jurisdiction of a
dispute over the enforcement of a settlement agreement.
Plaintiffs also move to vacate the restraints prohibiting them
from distributing certain funds held in escrow pursuant to that
settlement agreement. The Malones, in contrast, seek adoption of
the Report and Recommendation and oppose the removal of the
restraints with respect to the funds held in escrow.*fn1 For the
reasons set forth below, the Report and Recommendation is adopted
in part and rejected in part. In addition, Plaintiffs' motion to
vacate the restraints is granted.

FACTS

The current dispute arises out a suit brought by Plaintiffs in
a complaint filed on 19 April 1988 (the "Complaint"). Plaintiffs
brought suit against defendants for securities fraud, violations
of the Racketeer Influenced and Corrupt Organizations Act
("RICO") and various state law claims. Plaintiffs alleged
defendants engaged in a fraudulent scheme to promote limited
partnership interests in a corporation engaged in the purchase
and leaseback of computer equipment. In a Letter-Opinion and
Order, filed 10 May 1989, Plaintiffs' securities law claims and
state law claims were dismissed pursuant to Fed.R.Civ.P.
12(b)(6). Plaintiffs' RICO claims, however, were not dismissed
and they were given leave to amend the Complaint to replead
certain allegations. The amended complaint was filed on 5 May
1989 (the "Amended Complaint").

Subsequently, the parties entered into a proposed "Order
Stipulating Dismissal and Embodying Terms of Settlement" (the
"Proposed Settlement Order"). The parties agreed to dismissal of
this case upon the payment by defendants of certain sums of money
(the "Settlement Proceeds"). The Proposed Settlement Order
provides:

"(8) Esch and Lange shall personally guarantee the Computer
Match Note to plaintiffs as well as any principal and interest
payments due thereon. They shall also agree to designate John
Holsinger, Esq., as the designated agent for service of process
upon the Guarantees. In lieu of security or pledge upon the Note,
Esch and Lange shall provide financial statements under seal
disclosing their individually or jointly held assets held in the
entireties, as joint tenants or as tenants in common,
liabilities, then-current terms of employment and residences.
This statement shall be updated every six months until the
Computer Match Note is repaid in full."

"(9) Esch and Lange further agree that in the event of a
default upon the Computer Match Note which remains uncured
following notice and opportunity to cure, plaintiffs shall have
the right to proceed ex parte upon application to this Court,
to enforce the terms hereof, and obtain a judgment against Esch
and Lange for the outstanding balance of the Computer Match Note
following presentment of attorney certification attesting to
continuing default."

"(10) In the event Computer Match defaults in making the first
$10,000 payment and Esch and Lange fail to cure that default upon
their guaranty, plaintiffs shall have the option to reinstate
this action or the companion action to be dismissed in New Jersey
Superior Court against the defaulting defendants for the full
amount sought in the complaint less any sums paid hereunder."

"(11) This civil action as well as civil action pending in the
Superior Court of New Jersey entitled Ronald Sherman, et al. v.
Richard Wellbrock, et al., Docket No. 044309-88 shall be
dismissed with prejudice subject to the terms and conditions
hereof upon execution of the within stipulation of settlement."

"(12) As attorney for plaintiffs, by counsel's signature below,
plaintiffs forever release each of the defendants from all
claims, causes of action or any other contentions which they have
or could have raised in connection with, arising from or
associated with the purchase of units of K-T Associates including
any income tax consequences arising therefrom or any other
expenses, cost or loss incurred at any time on behalf of each of
the plaintiffs. Individual releases from the plaintiffs will be
submitted upon receipt by counsel for plaintiffs."

The dispute over the distribution of the Settlement Proceeds
centers around the share the Malones are entitled to receive.
Significantly, the Proposed Settlement Order does not set forth
the manner in which the Settlement Proceeds are to be distributed
amongst the Plaintiffs. Apparently, however, the Settlement
Proceeds are to be distributed among the individual plaintiffs on
a pro rata basis determined in accordance with the number of
units each individual plaintiff held in the partnership K-T
Associates. Plaintiffs Brief at 2. In addition, each individual
plaintiff was to receive out of the Settlement Proceeds the
amount of monies they advanced to counsel for bringing this case.
Plaintiffs Brief at 2 n. 2. The Plaintiffs contend the Malones
are entitled to only the amount of money they advanced towards
bringing this case. Plaintiffs Brief at 2 n. 2. Plaintiffs
contend the Malones had initially agreed to participating in this
case but at one point ceased contributing funds. Id. Plaintiffs
contend the Malones agreed to the Proposed Settlement Order
explicitly on the term that they are to receive only the amount
they advanced to counsel and no other part of the Settlement
Proceeds. Id.

The Malones contend they are entitled to a share of all the
Settlement Proceeds.*fn3 Malones Brief at 1. The Malones argue
the Settlement Proceeds must be distributed in accordance with
state laws governing the dissolution of partnerships and the
consequent distribution of partnership assets. Malones Brief at
6-11. Significantly, the Malones do not object to the terms of
the Proposed Settlement Order. Malones Brief at 1. Rather, they
simply disagree as to how the Settlement Proceeds are to be
distributed amongst the partners of K-T Associates. Id.

The hearing as to these questions was conducted on the
submissions of the parties. After considering the submissions,
Magistrate Hedges issued a Letter-Order in which he raised the
issue whether the court has jurisdiction over the dispute as to
the distribution of the Settlement Proceeds. See Letter-Order,
filed 15 January 1991. Magistrate Hedges adjourned the hearing on
the distribution of the Settlement Proceeds and ordered the
parties to file written submissions on the jurisdictional issue.
Id.

After considering the submissions, Magistrate Hedges issued the
Report and Recommendation on the jurisdictional issue. The Report
and Recommendation stated the court should decline to exercise
jurisdiction over the dispute. Report and Recommendation at 5.
Magistrate Hedges reasoned the essence of the dispute centered
around the parties' rights under the partnership agreement and
the Uniform Partnership Laws of New Jersey, N.J.S.A. 42:1-1 et
seq. Report and Recommendation at 2. Magistrate Hedges also
reasoned that Rule 13(g) of the Federal Rules of Civil Procedure
governed the jurisdictional question. Report and Recommendation
at 3.

Rule 13(g) governs the assertion of cross-claims.*fn4
Magistrate Hedges characterized the dispute over how the
Settlement Proceeds were to be distributed as, in essence, a
cross-claim asserted by the Malones against the Plaintiffs.
Report and Recommendation at 4-5. Magistrate Hedges concluded the
"cross-claims" were not supported by ancillary jurisdiction
because they did not arise out of the same transaction or
occurrence as the RICO and securities law claims in the Complaint
or the Amended Complaint. Report and Recommendation at 5.
Accordingly, Magistrate Hedges recommended the court not retain
jurisdiction to consider what the Malones are entitled to under
the Proposed Settlement Order. Id.

DISCUSSION

Plaintiffs object to the Report and Recommendation on the same
grounds placed before Magistrate Hedges. The relevant question is
therefore whether the court should retain jurisdiction to
consider how the Settlement Proceeds should be distributed
amongst the Plaintiffs.

A. Standard of Review

Pursuant to 28 U.S.C. § 636(b)(1), Rule 72 of the Federal Rules
of Civil Procedure and Rule 40(A) of the General Rules of the
United States District Court for the District of New Jersey (the
"General Rules"), a United States Magistrate may hear
"dispositive" and "nondispositive" motions assigned by the
district court. Section 636(b)(1) of Title 28 of the United
States Code states a district court may "accept, reject or
modify, in whole or in part, the findings or recommendations made
by the magistrate. The judge may also receive further evidence or
recommit the matter to
the magistrate with instructions." 28 U.S.C. § 636(b)(1).

To the extent the Report and Recommendation is grounded upon
Rule 13(g), it is rejected. As discussed above, Rule 13(g)
addresses the assertion of cross-claims. Because no cross-claims
have been asserted in this case, Rule 13(g) is inapposite.
Therefore, the relevant issue is whether there is any other basis
for adopting the Report and Recommendation's ultimate conclusion
that the court should not retain jurisdiction.

B. Jurisdiction to Enforce Settlement Agreements

The Third Circuit has not affirmatively ruled on the issue of
whether a court has inherent jurisdiction to enforce all
settlement agreements in cases originally before the court.
Halderman v. Pennhurst State School & Hospital, 901 F.2d 311,
317 (3d Cir.), cert. denied, ___ U.S. ___, 111 S.Ct. 140, 112
L.Ed.2d 107 (1990); Langella v. Anderson, 734 F. Supp. 185, 188
(D.N.J. 1990). The Circuit has, however, adopted the view that
jurisdiction is retained at least when the settlement agreement
was approved by the court and incorporated into an order of the
court. Halderman, 901 F.2d at 317 (citing Washington Hospital
v. White, 889 F.2d 1294, 1299 (3d Cir. 1989), and McCall-Bey v.
Franzen, 777 F.2d 1178, 1188-89 (7th Cir. 1985)).

Under Halderman, the crucial inquiry is whether the language
of the order entering the settlement agreement can be used to
infer that the court intended to retain jurisdiction. 901 F.2d at
317. Quoting the Seventh Circuit, the Third Circuit noted:

`. . . [W]e have expressed no doubt of the power of
a district court to dismiss a lawsuit conditionally,
retaining jurisdiction to effectuate terms of
settlement agreed to by the parties. Nor do we think
there is any magic form of words that the judge must
intone in order to make the retention of jurisdiction
effective. All that is necessary is that it be
possible to infer that he did intend to retain
jurisdiction — that he did not dismiss the case
outright, thereby relinquishing jurisdiction.'

Halderman, 901 F.2d at 317 (quoting McCall-Bey, 777 F.2d at
1188).

The question of what circumstances are sufficient to give rise
to the inference that jurisdiction is retained is determined on a
case-by-case basis. In McCall-Bey, the settlement agreement
provided that the parties could petition the court to enforce the
settlement agreement. 777 F.2d at 1188-89. In Washington
Hospital, the settlement agreement provided the parties shall
not attempt to adjudicate further any issues in the case except
to enforce the terms of the settlement agreement. 889 F.2d at
1299. Although the Circuit in Halderman stated all that is
necessary was that the court approved of and entered the order
adopting the settlement agreement, certain language in the
settlement agreement suggests the court explicitly retained
jurisdiction for a period of time. 901 F.2d at 318 ("Subject to
paragraphs 15 and 16 below, the parties agree that as of the
dates specified in those paragraphs, the District Court will mark
this case closed and settled. . . .").

The Seventh Circuit declined to find an inherent power to
adjudicate a purely state law controversy when a case has been
dismissed from federal court. McCall-Bey, 777 F.2d at 1187.
Accord Londono v. City of Gainesville, 768 F.2d 1223, 1227
(11th Cir. 1985); Fairfax Countywide Citizens Assoc. v. Fairfax
County, 571 F.2d 1299, 1303 (4th Cir. 1978), cert. denied,
439 U.S. 1047, 99 S.Ct. 722, 58 L.Ed.2d 706 (1978). In reaching this
conclusion, the Circuit posed a scenario in which a suit in
federal court due to diversity jurisdiction is dismissed because
the parties settled. McCall-Bey, 777 F.2d at 1187. The
hypothesized settlement agreement provided the defendant pay a
sum of money to the plaintiff. Id. Years later, the plaintiff
petitions the federal court to order the payment of the remaining
balance due, which does not exceed the jurisdictional amount for
diversity as set forth in 28 U.S.C. § 1332. McCall-Bey, 777
F.2d at 1187.

The Seventh Circuit rejected the notion that inherent
jurisdiction existed to adjudicate the latter suit when the
requirements for diversity jurisdiction are not met. The Circuit
noted that if a court had the inherent jurisdiction to adjudicate
all cases it formerly adjudicated to settlement, then the court
would be forced to adjudicate the hypothetical plaintiff's
petition, even though no independent basis for federal
jurisdiction existed. Id. The Circuit stated:

Here, the question of the distribution of the Settlement
Proceeds is governed by the partnership laws of the State of New
Jersey. See N.J.S.A. 42:1-1 et seq. Subject matter
jurisdiction over the claims in the Amended Complaint was
presumably based on 28 U.S.C. § 1331 and 1337. Amended Complaint
at 2. The Proposed Settlement Order does not expressly retain
jurisdiction over collateral issues such as the one considered
herein. Absent any indication that an independent basis for
federal jurisdiction exists over the state law claims regarding
the distribution of the Settlement Proceeds, there is no reason
to retain jurisdiction when jurisdiction was not otherwise
expressly retained to adjudicate this issue.*fn5 Accordingly,
the Report and Recommendation is adopted to the extent it
recommends the court not exercise jurisdiction over this dispute.

D. Release of Funds Held in Escrow

Plaintiffs move to vacate the restraints on the distribution of
the monies held in escrow in anticipation of the settlement of
this case. Plaintiffs contend the escrow was created solely for
the purposes of the 18 January hearing to determine whether the
court had jurisdiction to adjudicate the dispute over the
distribution of the Settlement Proceeds. Plaintiffs Brief at 8.
The Malones seek to continue the restraints until the dispute as
to the distribution of the Settlement Proceeds is resolved.
Malones Brief at 3.

Because jurisdiction is not retained as to the dispute over the
distribution of the Settlement Proceeds, there is no jurisdiction
to continue to enforce the restraints on the funds held in
escrow. Those restraints were imposed only to preserve the status
quo while Magistrate Hedges was considering the jurisdictional
issue. Accordingly, Plaintiffs' motion to vacate the restraints
is granted. The Malones may seek relief in state court to prevent
disbursement of the Settlement Proceeds prior to resolution of
the dispute as to distribution.

CONCLUSION

For the reasons set forth above, the Report and Recommendation
is adopted only to the extent it recommends the court has no
jurisdiction to adjudicate the dispute over the distribution of
the Settlement Proceeds. In addition, Plaintiffs' motion to
vacate the restraints on the funds held in escrow is granted.

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